• Bank of America economists project no Fed rate cuts in 2025 due to persistent inflation.
  • Consumer spending remains resilient, but higher borrowing costs weigh on households and businesses.
  • New tariffs and trade policies add uncertainty, reinforcing the Fed's cautious stance.

Sticky inflation delays Fed easing

Bank of America CEO Brian Moynihan has doubled down on the bank's contrarian view that the Federal Reserve will keep interest rates higher for longer, telling investors that inflation is proving more stubborn than many market participants anticipate. The bank's economists now don't foresee rate cuts beginning until mid-2026 at the earliest, with inflation not returning to the Fed's 2% target until late 2026 or 2027.

"Our economists believe the Fed will not cut rates because inflation will take longer to get down," Moynihan said in recent remarks that echoed the bank's latest internal forecasts. The comments come as other major Wall Street firms have gradually pushed back their own rate-cut expectations in recent months.

Consumer resilience meets policy headwinds

Despite the restrictive monetary environment, Bank of America's data shows consumer spending growing at about 5% year-over-year. But Moynihan cautioned that new tariffs and shifting trade policies are creating additional inflationary pressures that could prolong the Fed's wait-and-see approach.

Market participants had initially expected rate cuts as early as late 2024, but have steadily revised those projections as inflation data continues to surprise to the upside. The bank now sees the federal funds rate eventually normalizing around 3-3.5%, but not until inflation shows sustained progress toward the Fed's target.

The long shadow of 1970s-style inflation

The current economic environment bears some resemblance to the late 1970s, when the Fed under Paul Volcker was forced to maintain restrictive policies for an extended period to finally break inflation's back. While today's circumstances differ in important ways, the parallel underscores why policymakers may be reluctant to declare victory prematurely.

Bank of America's 1.5% GDP growth forecast for 2025 reflects these crosscurrents - resilient consumer demand on one hand, but tighter financial conditions and policy uncertainty on the other. As one senior bank official noted privately, "This isn't the time for the Fed to take its foot off the brake."